Investment strategies-2010

Abstract

The objective of the report is as follows: * Study the macroeconomic conditions in UK,US, Europe, India and China (including HK) * Project the interest rate and currency exchange rates for US, UK, India and China * Study the bond market and currency market * Suggest investment strategies for investment in the bond market and the currency market * Suggest investment strategies for8 sectors (Automobile, Banking, Electronics, oil, Retail, Telecom, Pharma & healthcare and Utilities) on the various indices (FTSE, STOXX, SPX, NIFTY, HSI). The scope of the report is limited to the study of the macroeconomic conditions in the four regions (US,UK, India and China). The sector study is also limited to 8 sectors (Automobile, Banking, Electronics, Oil, Retail, Telecom, Pharmaceuticals and Utilities). The analysis is primarily qualitative in nature: the technical indicators of performance have more or less not been touched upon. In addition, the report derives hugely from the statements of the policy makers and their indications regarding when the exit measures for the different regions would be implemented. The final recommendations are valid for a particular sector only and investments in individual companies of that sector may demand a different view. For analyzing the sector performance, for each sector on each index, companies from that sector listed onto that index have been chosen. Thus it is possible that for analysis, a certain sector on a certain index might have data on 8 companies, whereas another might have just 3. However, we believe that these companies being the largest players in that sector on that index would be a valid indication of the performance of that sector.The list of the companies taken for analysis on each index has been attached in appendix 1. As for recommendations on investment in sectors, we have used only P/E as a metric to determine whether the sector/stock is currently overvalued or undervalued. The average sector P/E taken to compare this is the weighted average P/E across the past 3 years. All the observations of the report are valid only under the assumption that we would not witness any massive aberrations in the economy. The investment strategies proposed are solely on the basis of the judgment and the understanding of the authors of the report. We have not accounted for any effects of 1 country on another or 1 sector on other. Methodology: This report is divided into XX number of sections. In the first section, the report contains a study of the macroeconomic conditions in the economy. A complete analysis of various factors affecting the general economic conditions – unemployment, interest rate etc., has been done. The liquidity and money supply in various economies was also taken into consideration, then, to come up with estimates of change in interest rates over the next 6 months. These estimates were further used during the study of bond, currency and equity markets in the next few sections. The bond markets in US, UK and Europe have been studied in Section II based on various factors affecting the bond prices in these markets. Specifically, demand and supply, government regulations, interest rate changes & liquidity considerations have taken into account to come up with the future prospects of bond markets across the world. On the basis of these estimates, possible options for investing money in the bond markets have been generated. The next section takes a look at the currency markets for USD against other currencies. The interest rate differential existing in the markets has been analyzed to look at the possibility of a carry trade. Based on this, the investment strategies in currency markets have been suggested. Another extremely important indicator, which deeply affects the general economic well being, is Oil prices. These days, it is an important investment vehicle with a very well developed commodity trading market in US, UK and Europe. There are a number of factors, which affect the oil prices such as supply-demand, oil reserves, regulatory factors, inventory and spare capacity. The next section then looks at 8 sectors around 5 economies for their future performance. Each industry depends on a number of unique factors and an attempt has been made to understand how all the factors would interact together such that a projection of future growth can be made.